A file photo of Sun TV chairman Kalanithi Maran. With Sun TV’s winning bid, the league will field nine teams in the next season. Photo by Photo: SaiSen/Mint

Updated: Fri, Oct 26 2012. 01 18 AM IST

Mumbai:The Kalanithi Maran-controlled Sun TV Network Ltd won the auction for the Hyderabad Indian Premier League (IPL) franchise on Thursday, replacing former owner, the financially strapped Deccan Chronicle Holdings Ltd (DCHL), which had its Deccan Chargers team scrapped by the Board of Control for Cricket in India (BCCI) because it was unable to furnish a Rs.100 crore bank guarantee by a 12 October deadline.

Sun won the franchise for the Hyderabad team with a winning bid of Rs.425 crore, or Rs.85 crore per year, for the next five seasons of the Twenty20 cricket tournament. However, the final lineup of the IPL could still depend on what the courts say.

To be sure, this is the purchase of a new franchise for a Hyderabad team and not the acquisition of the Deccan Chargers, which doesn’t exist anymore after BCCI’s cancellation of that franchise.

The move marks another significant expansion by Maran outside Tamil Nadu, where Sun TV is a ubiquitous presence in television broadcasting and distribution, and shows the company’s resilience despite the state government’s moves against his business interests.

Earlier, in June 2010, Maran took over SpiceJet Ltd, India’s second-biggest low-fare airline and his biggest venture outside the media and entertainment domain.

Maran will be looking to exploit the popularity of IPL to leverage his business and media interests in Andhra Pradesh and elsewhere given the vacuum that will arise from the eclipse of the Deccan Chronicle group and the weakening of the Sakshi group, whose founder Jagan Mohan Reddy is battling the Congress government and corruption allegations.

Sun TV got a bargain compared with franchise prices two years ago and even a failed bid for Deccan Chargers just a month back.

“It’s a steal, and cheapest compared with other IPL teams such as Sahara (Pune Warriors) and (the now defunct) Kochi,” said K. Vijay Kumar, managing director and CEO of Sun TV Network. “We will be paying only Rs.85 crore (per year) for the next five years. We expect it to grow three times in valuation in the next five years.”

Ashish Pherwani, partner with audit and consultancy firm Ernst and Young, said, “Sun already has a strong regional affinity. The IPL buy will serve as a platform to promote its pan-India products such as the DTH (direct-to-home) business and SpiceJet. It can use IPL effectively to build national brand recall.”

Hyderabad is close to Sun’s home base of Chennai and the IPL team will help boost the Sun brand, Kumar said.

Investors, however, weren’t too enthused. Shares of Sun TV lost 3.46% to close at Rs.343.65 each on Thursday on BSE. The exchange’s benchmark Sensex gained 0.26% to close at 18,758.63 points.

“The buying of Deccan Chargers means that Sun TV’s margins and earnings will be diluted and that’s why the shares are down,” said a Mumbai-based analyst who tracks Maran’s flagship company. “This will affect overall earnings, although the purchase will be a positive over the long term,” added the analyst, who didn’t want to be named.

An executive with an existing IPL team said, “Our estimate is that Sun will have to shell out around Rs.80 crore as operating cost, in addition to the Rs.85 crore it will give per year as its franchise fee to BCCI. It is tough to make money.”

The cricket board had set the base price for the bid at Rs.60 crore per year for the next five years, Mint reported 19 October. Thursday was the last day for interested parties to submit bids for a new team.

The new franchise fee represents a premium of over 100% above the amount paid by DCHL for the Hyderabad team in 2008, BCCI said in a statement. DCHL had won the Hyderabad team for $107 million for 10 years.

“Sun group’s promoters are credible players and we believe they will bring decent value to the IPL,” said Rajeev Shukla, IPL chairman.

He said it’s too early to say whether BCCI will add another team in the coming years to bring the team count to 10. With Sun TV’s winning bid, there will be nine teams in season six of IPL, which will be held next summer.

Kumar didn’t say why Sun TV hadn’t bid for the Deccan Chargers team when it was put up for auction by its owners in Chennai a few weeks ago, if it was keen on Hyderabad.

Sun had competition from PVP Ventures Ltd, which bid Rs.69.03 crore per year for the Hyderabad franchise for the next five years (or Rs.345.15 crore) on Thursday.

The end of the Deccan saga?

DCHL had been hoping to resolve its financial problems by selling the team but rejected the sole bid received at the auction in Chennai on 13 September. At that time, real estate company PVP Ventures was the lone bidder which made an offer of Rs.900 crore.

PVP Ventures bid lower on Thursday because it excluded additional costs that would have to be incurred on a new team.

“When we bid for Deccan Chargers at Rs.900 crore, we were looking to buy a well-established brand,” a spokesperson said. “However, while bidding for a new franchise, we decided to go with a lower figure excluding the brand and marketing cost.”

On 14 October, BCCI invited bids for a new IPL team for any one of 12 cities—Ahmedabad, Cuttack, Dharamsala, Indore, Hyderabad, Kanpur, Kochi, Nagpur, Noida, Rajkot, Ranchi and Visakhapatnam.

On Thursday, the Gauhati high court restrained BCCI from “taking a final decision” on the tender floated on 14 October for the selection of new IPL teams in response to a public interest litigation challenging the lack of any team from the city in the 12 cities, PTI reported.

However, the court said BCCI could go ahead with the process for selection of teams, which would be subject to its final orders.

Besides that, the Bombay high court said on 18 October that it will examine the legality and validity of the BCCI’s termination of Deccan Chargers at a hearing on 29 November, although it also allowed the BCCI to go ahead with seeking bids for new teams.

Lenders now expect the BCCI to release money that it owes DCHL.

“Since the time Deccan Chargers has been terminated, the banks have started declaring their loans to DCHL as non-performing assets,” said an executive with one of the lenders. “In a way, the selection of a new franchise for Hyderabad will hasten the recovery of bank loans from DCHL as the BCCI will now have to clear all the dues to DCHL.”

BCCI has held back around Rs.41 crore it owes DCHL, as part of IPL’s central revenue against the non-payment of salaries to Deccan Chargers’ players (domestic and international), support staff and cricket boards and associations. DCHL has dues to the tune of Rs.33 crore.

Will Sun make money?

Media industry experts are sceptical about Sun recovering its investment in the next five years of IPL.

“The winning bid doesn’t seem very economical given that the bidder (Sun TV) has five years only to recover its cost and given the market it may be a tough task,” said Indranil Das Blah, chief operating officer, Kwan Entertainment and Marketing Solutions. “However, if Sun is looking at this team buy as an opportunity to market/promote its broadcasting business, then it makes sense.”

The winning bidder has a great deal of work to do, said an executive with a leading media buying agency.

“Sun will have to work on rebranding the IPL Hyderabad franchise and build a connect, given that it’s not a city like Delhi or Mumbai where the fan base is wide and sponsors are willing to put in money,” added this person who didn’t want to be identified.

Maran has other issues to contend with. SpiceJet has been struggling to raise $75 million over the last two years. Still, with the government having allowed overseas airlines to pick up as much as 49% in domestic carriers, SpiceJet could potentially be an investment target.

SpiceJet chief executive officer Neil Mills has confirmed that the airline held preliminary talks with some West Asian investors, although he said that the carrier isn’t in dire need of funds immediately.

Consultancy firm Centre for Asia Pacific Aviation said on 23 October that said SpiceJet was in talks with Boeing Co. of the US regarding orders for 30-40 Boeing 737 MAX planes. The report also said SpiceJet had delayed taking delivery of three smaller planes Bombardier Q400s because of a funding crunch. SpiceJet will need to raise funds to pay for current orders and any additional planes it wants to acquire.

The Sun Group is a key player in the south Indian market in the media and entertainment space, having set up the first privately owned Tamil channel.

In the television broadcasting sector, it operates 32 channels in the southern regional languages. According to the company’s website, its channels reach out to 95 million households in the country. The group operates 45 FM stations under the brand name Suryan FM in Tamil Nadu and Red FM in other parts of India. Red FM is co-promoted by Hyderabad-based Arjun Rao and Sun TV. It is also a DTH service provider and operates under the brand name Sun Direct and claims to have 7.5 million subscribers.

Sun has a presence in the print space through three Tamil newspaper dailies—Dinakaran (daily circulation 1.4 million), Tamil Murasu (and Malai Murasu— and six weekly magazines, also in the same language.